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Imagine a U.S. citizen who writes off business expenses when filing their annual federal income tax return. They don't make a profit for three years, but before the IRS declares their business a hobby they finally make a profit, two years in a row. So they are allowed to continue deducting business expenses.

However, the next year they once again don't make a profit.

Here's my question: After a business has recorded a profit, for how many years can the owner continue writing off business expenses even though the business isn't profitable that particular year?

For example, if a person makes a profit in 2000, then does NOT make a profit for each of the five following years, would that person be allowed to continue writing off business expenses?

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  • irs.gov/pub/irs-news/fs-08-23.pdf
    – ohwilleke
    Nov 12 '21 at 17:26
  • "non-profit" usually denotes a corporation that has tax-exempt status because as a charitable, religious, or educational organization.
    – phoog
    Nov 13 '21 at 10:46
  • Where I'm from it is highly unlikely for any new mine to be remotely profitable in its first 3 - 5 years of existing.
    – Neil Meyer
    Nov 13 '21 at 18:15
  • A non-profit as its name my imply does not generate profit. It either has a surplus of funds or a deficit.
    – Neil Meyer
    Nov 18 '21 at 9:58
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Both businesses and hobbies can make profits or losses

Whether an activity makes a profit or loss is not definitive in whether it is a business or a hobby. The activity must be considered in its totality.

The IRS states the following:

An activity is presumed for profit if it makes a profit in at least three of the last five tax years, including the current year (or at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses).

However, that is a rebuttable presumption and they also give a non-exhaustive list of other factors that going into determining if the activity is a business or a hobby.

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You are confusing the terms tax write off with a tax deduction. In most countries you are allowed to deduct the money spent on the economic activities as long as they are spent with the idea of turning a profit. Profit is after all income minus expenses. Tax is on profit, so by implication anything that increases expenses deduct from your tax burden.

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